The investigators dealing with share market manipulations said in their report that the stock market's stability would not be achieved without political commitment at the highest level, only which is capable of eliminating the 'vicious cycle' ruling the market. The comment comes after the probe body has identified a myriad of corruptions committed by a section of powerful businessmen, politicians, stakeholders, key officials, and individual investors. The probe body said in its report that the recent crash occurred in the market with direct or indirect support provided by the regulator, the Securities and Exchange Commission (SEC). During the investigation, the probe body identified a number of corrupt practices involving window-dressed balance sheets, book building method, direct listing, private placement, share split, dividend declarations, preference shares and price manipulations in the secondary market. When it comes to issuance of preference shares, the probe report said in the last one and half years, the listed companies desperately issued preference shares. In 2010, eight companies collected Tk 11.82 billion from the stock market through the issuance of preference shares. Among them, the major companies include Beximco Pharma, Summit Power, Aftab Automobiles and Peoples Leasing. The report said all this occurred in the absence of securities laws. As a result, the companies made the approval of preference shares by the regulator in accordance with their demand. The company directors made additional profits in absence of securities laws. It said, nowhere in the world the preference shares mature in such a short time as has been recently observed in Bangladesh. Summit Power and Peoples Leasing have sucked money from the market by issuing preference shares for only one month. The companies fixed up the ratio of convertible shares in such a way that the directors can be benefited. The report said the issuer companies had issued preference shares just to ensure their benefits, not to restore confi Continued from page 1 col. 5 dence in the market. Coming to private placement and pre-IPO placement, the report said the allotment of private and pre-IPO placement shares has been used as weapons of price manipulation. During the fiscal year 2009-10, 8 listed and 26 non-listed companies collected a total of more than Tk 37.79 billion through distributing placement shares. Among them, some companies have distributed pre-placement shares equivalent to more than 90 per cent, 60 per cent or 50 per cent of their paid-up capital. As a result, the amount of free-floating shares reduced drastically and the opportunity of price manipulation was created in the secondary market. The probe body identified 30 individuals who got a large amount of placement shares. The major names of top individual placement holders include Noor Ali, Richard D Rozario, Ku U Chung, RY Shamsher, Tasmia Ambarin, Helal Uddin, Shuma Alam, Mansur Billah, Abdul Mazid Mandol, Farzana Akhter and KBM Moinuddin Chisti. The probe body also said in its report that Tk 4.50 billion was collected by distributing the placement shares of seven mutual funds. The probe body raised questions regarding the abnormal price fixing of some companies, which demanded high premiums. The report specifically said that LankaBangla Securities demanded Tk 240 as premium for the shares of Tk 10 each, despite the fact that there is a question whether a securities company can go public. The report also pointed out the abnormal premium of Tk 175 for each share of Tk 10, demanded by Unique Hotel. Coming to pre-IPO manipulation, the report said the manipulations that occurred outside the stock market with direct help provided by the securities regulator are absolutely unexpected, unethical and also an output of a specific syndication. In that case, perhaps the SEC officials paved the way of manipulations related to placement-shares. It said, "In fact, an illegal kerb market has been created for the business of placement shares under the protection of SEC." In that market, the placement shares changed hands against tokens only and in that market there was no existence of electronic or paper shares. The kerb market not only strengthened a syndicate of top SEC officials, DSE and CSE members, civil and military officers, but also the "top level people of society was affected by the virus of these corruptions". When it comes to share split, the report said during the fiscal year 2009-10, the share prices and liquidity were influenced beyond expectation by the mechanism of share splitting. The companies made the best use of this mechanism by ultilising the investors' psychological weakness. The market cpaitalisation of the companies, whose shares were split, increased by up to 655 per cent. On the other hand, the market capitalisation of the companies, which did not spilt shares, increased by only 46 per cent. Coming to right shares, the probe body said in it report that after the issuance of right shares, the market price reduces as the number of shares increases. But in Bangladesh the opposite scenario emerged following the declaration of right shares. Before the approval of right shares at the EGM or AGM, the manipulators increased the market prices by disclosing the news of right offers in the market. The report said the CIB clearance is a prior condition of approving the right offers. But the companies intentionally disclosed the news just to increase the market price of the companies' shares. In that case, the role of securities regulator was mysterious and manipulators got enough time to influence market prices due to the regulator's dilly-dallying in approving or cancelling the approvals. In the fiscal year 2009-10, 28 companies issued right shares of Tk 26.17 billion, taking high premiums. The companies that received high premiums include Prime Bank, Makson Spinnings, City Bank, Confidence Cement, Bay Leasing, Eastern Insurance and Asia Insurance. Coming to direct listing and book building, the probe body's report said the securities regulator failed to prevent irregularities that helped the companies fix higher prices for the shares set to go public under book building or direct listing method. These companies include Aftab Automobiles, Navana CNG, Khulna Power Company Limited (KPCL) and GMG Airlines, despite the fact that GMG Airlines is yet to go public. The securities regulator was supposed to be strict in line with rules and regulations. But the SEC has not taken necessary measures to check irregularities that compelled the bidders to receive a specific amount of shares at a certain price. The report said severe manipulations occurred in case of price fixing of the companies, which went public under both the methods. The manipulations also occurred in the companies' audited balance sheets. Coming to the banks' investment in the stock market, the probe body's report said, "The depositors did not give the rights to banks to invest their money in the stock market." Because, the stock market is a place of investing one's own money. But the investment of clients' money that poured into the stock market is very unethical. That's why, in the banking system of India and Pakistan, the amount of banks' investment in the stock market has been related to their equities, not with the clients' deposits. But the Bangladesh Bank has defined the banks' investment volume at 10 per cent of their liabilities. That's why, a big amount of banks' loan entered the market and the share prices increased abnormally. The report said, if this system is not reformed the future stock market and money market would face great difficulties and finally the country's economy would be thrown into trouble.
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